Jack In The Box Inc. (NASDAQ:JACK) filed Annual Report for the period ended 2012-09-30.
Jack In The Box, Inc. has a market cap of $1.12 billion; its shares were traded at around $26.98 with a P/E ratio of 15.6 and P/S ratio of 0.5. Jack In The Box, Inc. had an annual average earning growth of 7.6% over the past 10 years. GuruFocus rated Jack In The Box, Inc. the business predictability rank of 3-star.
Highlight of Business Operations:As the number of franchised restaurants has increased and continues to increase, the percentage of our revenues derived from royalties and rents at franchise restaurants will increase, as will the risk that earnings could be negatively impacted by defaults in the payment of royalties and rents. In addition, franchisee business obligations may not be limited to the operation of Jack in the Box or Qdoba restaurants, making them subject to business and financial risks unrelated to the operation of our restaurants. These unrelated risks could adversely affect a franchisee's ability to make payments to us or to make payments on a timely basis. We cannot assure that franchisees will successfully participate in our strategic initiatives or operate their restaurants in a manner consistent with our concepts and standards. As compared to some of our competitors, our Jack in the Box brand has relatively fewer franchisees who, on average, operate more restaurants per franchisee. There are significant risks to our business if a franchisee, particularly one who operates a large number of restaurants, encounters financial difficulties or fails to adhere to our standards and projects an image inconsistent with our brands.
As we execute our Jack in the Box refranchising strategy, which includes the sale of restaurants to franchisees, we expect the number of company-operated restaurants and the related sales to decrease while revenues from franchise restaurants increase. As such, company restaurant sales decreased $161.1 million in 2012 and $288.3 million in 2011 as compared with the respective prior year. The decrease in restaurant sales in both years is due primarily to decreases in the average number of Jack in the Box company-operated restaurants, partially offset by an increase in the number of Qdoba company-operated restaurants and increases in average unit volumes (“AUVs”) at our Jack in the Box and Qdoba restaurants. The following table presents the approximate impact of these increases (decreases) on company restaurant sales and the effect of additional sales from a 53rd week in 2010 (in millions):
Franchise revenues increased $43.7 million and $51.0 million in 2012 and 2011, respectively, as compared with the respective prior year. The increase in franchise revenues in both years primarily reflects an increase in the average number of Jack in the Box franchise restaurants, which contributed additional royalties and rents of approximately $48.2 million in 2012 and $53.5 million in 2011. In 2012, higher AUVs at Jack in the Box franchised restaurants also contributed to the increase and were more than offset by lower revenues from initial franchise fees of $10.4 million related to a decrease in the number of restaurants sold to and developed by franchisees. In 2011, the change in franchise revenues as compared with 2010 was also impacted by higher franchise fees from increases in the number of restaurants sold to and developed by franchises, an increase in re-image contributions to franchisees, which are recorded as a reduction of franchise revenues, and additional revenues in 2010 of $4.6 million from a 53rd week. The following table reflects the detail of our franchise revenues in each year and other information we believe is useful in analyzing the change in franchise revenues (dollars in thousands):
The income tax provisions reflect effective tax rates of 32.7%, 36.3% and 34.0% of pretax earnings from continuing operations in 2012, 2011 and 2010, respectively. The changes in tax rates are primarily due to the market performance of insurance investment products used to fund certain non-qualified retirement plans. Changes in the cash value of the insurance products are not included in taxable income.
As described in Note 2, Discontinued Operations, in the notes to our consolidated financial statements, the losses from our distribution business have been reported as discontinued operations. In 2012, 2011 and 2010, losses from discontinued operations, net were $5.3 million, $1.1 million and $0.8 million, respectively. In fiscal 2012, losses from discontinued operations reflect after-tax charges of $5.3 million related to exit costs associated with outsourcing our distribution business, which reduced diluted earnings per share by approximately $0.12.
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